It is important that the student of fiscal problems know the meaning of a number of terms used in connection with taxes. Some of the more important are base, rate, ad valorem, specific, customs duties, excise duties, shifting and incidence, levy, assessments, and tax list.

The base is the thing or circumstance upon which the tax is computed. The rate is the amount taken from each unit of the base. A tax rate of fifteen mills means that for every unit of the base of the tax, fifteen mills will be taken. Usually when the rate is so expressed, the unit of the base is one dollar. The base of the tax, however, might be a pound, foot, or gallon. A number of taxes are known by the base upon which the computation is made, as land, poll, income, or inheritance taxes. The base of a tax should not be confused with its source. Money might be borrowed to pay any of the preceding taxes. The base, then, is the object upon which the computation is made, and the source is the means by which the result of the computation is paid.

As already indicated, the base may be either a value measurement or some other characteristic. When taxes are computed upon value as a base they are said to be ad valorem. When some other unit of measure is used, as pound, yard, or gallon, taxes are said to be specific. A 10 per cent tax on the value of wheat sent from the country would be ad valorem, while a five-cent tax per bushel would be specific. Customs duties refer to taxes placed upon goods entering or leaving a country, while excise taxes or internal revenues refer to taxes placed upon goods produced within a country. Shifting of a tax signifies the removal of the burden from where it was first placed, while the incidence refers to the place where the burden finally rests. Shifting and incidence are discussed in detail in a following chapter, as are also customs duties and excise taxes.

The levy, assessment, and tax list have to do with the machinery of taxation. The levy of a tax is the legal process of its imposition. Since taxation is a prerogative of the state, the levying process is necessary to establish the tax. This process is usually retained by the legislative department with no power of delegating it to anyone else. The assessment consists in putting the tax levy into operation. It includes all the steps in determining the units of the base, and what the holders of these units must pay. The tax list is simply a record of this assessment. It may be used by various governmental units that have levied taxes upon the same base, or for various legal purposes, such as recording ownership and transfer of property.